HR478-119

What This Bill Does

This bill reduces regulatory friction for newly formed banks and insured depository institutions. Federal banking agencies must issue rules giving new depository institutions and holding companies a three-year phase-in period for otherwise applicable federal capital requirements. During the first three years after becoming insured, a new institution or holding company may ask to deviate from an approved business plan; the regulator must approve, conditionally approve, or deny the request within 30 days, explain denials, suggest changes that would allow approval, and treat the request as approved if the agency misses the deadline.

The bill also creates a special rule for new rural depository institutions under $10 billion in assets. During their first three years as insured institutions, the Community Bank Leverage Ratio is set at 8 percent, with rulemaking to phase in lower percentages during the first two years. Federal savings associations receive authority to make secured or unsecured agricultural loans. Finally, federal banking agencies must jointly study why de novo insured depository institutions have been scarce over the prior decade and report to Congress on ways to promote new institutions in underserved areas.

Who Benefits and How

De novo bank organizers benefit from phased-in capital requirements and a predictable process for changing business plans. De novo bank holding companies benefit because capital standards begin phasing in when the subsidiary becomes insured. Rural depository institutions under $10 billion benefit from the 8 percent Community Bank Leverage Ratio rule and lower phase-in percentages during the first two years. Federal savings associations benefit from new agricultural-loan authority. Farmers, ranchers, and agricultural businesses benefit from another lending channel. Underserved communities benefit if the study and regulatory changes increase new insured depository institution formation.

Who Bears the Burden and How

Federal banking agency rulemaking staff must write capital phase-in and rural leverage ratio rules. FDIC, Federal Reserve, and OCC supervision staff must review business-plan deviation requests within 30 days and provide reasons and suggested fixes for denials. Congressional banking committee staff must review the required de novo institution study. Consumer and prudential advocates bear risk if easier formation rules allow undercapitalized or poorly planned institutions to grow too quickly.

Key Provisions

• Requires a three-year phase-in period for federal capital requirements for new depository institutions and holding companies.
• Provides a 30-day approval, conditional approval, or denial process for new-institution business-plan deviations.
• Establishes an 8 percent Community Bank Leverage Ratio for new rural depository institutions during their first three years.
• Authorizes Federal savings associations to make secured or unsecured agricultural loans.
• Requires federal banking agencies to study the low number of de novo insured depository institutions and report to Congress.